Report by the Monitoring Task Team on the Government Guarantee and Conditions applicable to the South African Broadcasting Corporation

Meeting report

Ms R Morutoa (ANC) was elected as the Acting Chairperson of the Committee.  She noted the apologies of Prof Pippa Green and Mr Clifford Motsepe, Members of the Board of the South African Broadcasting Corporation (SABC).  The Committee noted that the SABC had recently appointed a Group Chief Executive Officer and a Chief Financial Officer to the vacant positions.

Report by the Monitoring Task Team on the Government Guarantee and Conditions applicable to the SABC
Mr Sam Vilakazi, Acting Deputy Director-General: Finance, Department of Communications and Chairperson of the Monitoring Task Team presented the briefing to the Committee (see attached document).

A government guarantee of R1 billion was provided in December 2009 and was utilised by the SABC to secure a loan from Nedbank.  The guarantee was subject to the commitments undertaken by the public broadcaster to successfully turn around the financial performance of the organisation.  The Monitoring Task Team (MTT) comprised representatives from the Department of Communications (DOC), the National Treasury and the SABC.  The MTT monitored the progress that had been made by the SABC in implementing the turnaround plan.

Four major guarantee conditions were set: the development of a turnaround plan; addressing the issues raised in the report of the Auditor-General; implementing the cost-cutting measures included in the shareholder’s compact and establishing the MTT.  The latter condition was achieved and the first three conditions were partially achieved.

In addition, the Minister of Communications had made commitments to the Committee concerning the revision of the guarantee targets, the filling of key vacant positions and introducing a 24 hour SABC news channel.  Draft proposals for the amendment of the guarantee targets had been submitted to the Minister of Finance for consideration.  The Chief Executive Officer and Chief Financial Officer positions had been filled.  The Chief Technical Officer position would be filled by 31 March 2012.  The Chief Operating Officer position would shortly be re-advertised.  The business plan for the 24 hour news channel had to be submitted to the MTT as soon as it was approved by the SABC Board. 

The SABC was challenged by declining audiences, declining revenue and brand integrity erosion.  The initiatives to stabilise the SABC included incorporating a turnaround strategy and a content acquisition plan in the corporate strategic plans for the period 2012 to 2015.

The progress made in meeting specific guarantee commitments to cut costs and to increase revenue was reported.  The commitment to increase advertising revenue was achieved.  The commitment to increase sponsorship revenue was not achieved.  Although the commitment to enhance content management was achieved, the MTT cautioned that the low level of spending had a negative impact on the quality of content and the ability to attract advertisers and audiences.  The commitments to reduce personnel costs, expenditure on professional fees and to increase marketing expenditure were not achieved.  The targets for license fee revenue collection, reducing other expenses and reducing finance costs were achieved.  The overall loss for the 2010/11 financial year was R214 million, which was below the target of R228 million.

The briefing included details of the progress that had been made for the period 1 April 2011 to 31 December 2011.  Total revenue amounted to R4.4 billion (higher than the target of R4.2 billion).  Total expenditure amounted to R3.9 billion (less than the target of R4.2 billion).  Although a year-to-date operating profit of R442 million was achieved, an operating loss of R11 million was projected by the end of the fiscal year.  A net loss of R92 million for the 2011/12 financial year was projected.  The guarantee commitment was a net loss of R228 million for the same year.

A responsible person was assigned for each turnaround project.  The current status of 21 projects indicated that one was completed, three were on track, four were behind schedule and thirteen were delayed.  The reasons for the delayed projects were delays in the implementation of the new operating model and organisational structure, a lack of funding and the inability to attract sponsorship revenue.

The cash flow predictions for the period 2010/11 to 2015/16 were illustrated by a graph.  Implementation of the Digital Terrestrial Television (DTT) programme would result in a cash flow shortfall of R836 million.

The MTT concluded that progress had been made in stabilising the SABC but challenges in achieving the desired targets remained, particularly in reducing staff costs and investing in quality content.  The improvement in financial performance was expected to be reversed over the fourth quarter of 2011/12.  Alternative arrangements for funding the DTT programme needed to be made.  The draft proposals to amend the guarantee targets would be considered by the Guarantee Certification Committee of the National Treasury on 13 March 2012.

Discussion
Ms M Shinn (DA) asked for clarity on the amount of the bank loan to the SABC.  She understood that the original loan requirement amounted to R1.47 billion but the government guarantee was for only R1 billion.  The progress report indicated that the targets for the existing three television channels would not be met and she questioned the additional expense of introducing the 24 hour news channel.  It was critical that the SABC became financially viable and able to attract more revenue.  She asked if the strategy for improving content included increasing the acquisition of local productions and developing local talent.  She noted that staff costs had increased.  She said that the SABC was famous for paying excessive ‘golden handshakes’.  She asked if targets had been set to reduce the number of personnel employed and if the employment contracts of executive personnel were being reviewed.

Mr B Steyn (DA) observed that the conclusions at the end of the briefing gave the impression that progress was being made.  He asked if the MTT was satisfied with the performance of the SABC in meeting the guarantee conditions.  He was not satisfied that sufficient progress had been made.  The request to amend the guarantee conditions created the impression that the conditions should be changed to meet the achievements.  He was not convinced that sufficient effort had been put into achieving the targets that had been set.  The projected financial performance indicated that the SABC would soon be back to the situation that prevailed when the R1 billion government “bail-out” was granted in 2009. He felt that the SABC Board was not doing enough and was not fully committed to turning around the broadcaster.  It took more than 15 months for the shareholder compact to be signed.  A draft turnaround plan had been approved but had not yet been ratified by the Board.  He wanted to see a greater sense of urgency at the SABC.  He was concerned over the continued increase in employee costs.  The filling of senior vacant posts would not reduce the salary bill and it was necessary to review the number of employees on the payroll.  He found the progress report confusing as it was not clear what the targets for 2012 were and whether the targets were being met.  The report indicated that most targets were not being met and the fact that the R214 loss for 2010/11 was less than the target amount was no cause for celebration.  It was clear that the SABC remained in financial difficulties.

Ms W Newhoudt-Druchen (ANC) observed that certain target dates in the corporate plan had been passed.  She asked if the progress report was up to date.  She wanted to know what loan repayments had been made to Nedbank.  She asked for further comment on the concern expressed by the MTT on the impact of the reduced expenditure on programme content and the long-term impact of low quality programme acquisitions.  Viewers complained about the repeating of programmes.  She asked what was being done to increase local content and increase the benefits to local artists and producers.  It had been reported that SABC personnel had private businesses, which benefitted from tenders issued by the Corporation.  This practice did not help to reduce the financial losses and she wanted to know if the allegations were being investigated.

Ms J Killian COPE) said that there were some indication of improved stability at the SABC but this was not reflected in the progress report.  She wanted to see that the battle was being won but was not convinced that sufficient progress was being made.  The performance in achieving the four key guarantee conditions was not satisfactory.  The only condition that had been achieved was the establishment of the MTT, albeit long after the guarantee was provided.  The Committee had been concerned over the failure to include the turnaround plan in the SABC’s strategic plan.  The Board was aware of the necessity to include the turnaround plan but it would appear that the attitude of the management component was “business as usual”.  She asked which recommendations of the Auditor-General had been implemented to date and what remained outstanding.  The Committee was committed to eliminating insider-trading and South Africans would not tolerate incidents of corruption.  The Committee needed to know what steps had been taken to deal with allegations of corruption and a detailed report was awaited.  A 24 hour news channel was welcomed but she wanted to know if a skills audit had been conducted and if the organisation had been reviewed to determine if the proposed new channel could be incorporated into the existing structure.  The Committee wanted to see the facts and figures for the new channel.

Ms Killian asked what plans were in place to improve the competitiveness of the SABC.  She asked what was being done to address the challenges of declining audience numbers, declining revenue, the loss of sport sponsorships and brand erosion.  The escalating staff cost was a matter of grave concern.  The SABC had given an undertaking in 2010 to reduce the number of employees. Not renewing employment contracts was not the solution as it was necessary to retain essential skills.  She wanted to know what was being done to address the issue and to ensure that staff numbers and output were linked.  She asked what was preventing the SABC from reducing the headcount.  If the current business model was not changed, the SABC would need another bail-out from government and from licence holders.  The Committee wanted the assurance that the necessary action was being taken and that the guarantee conditions were being met.  She asked for details of the revised conditions and if there was any guarantee that the amended conditions would be met.  The Committee was accountable to the public for the spending of public funds and wanted to see that progress was being made in ensuring the financial viability of the SABC.

Mr G Schneemann (ANC) asked what plans were in place to reduce employee costs.  He said that it was no use to have a plan that was not implemented.  He asked what the reasons were for the projected net loss of R92 million for the 2011/12 financial year.  He was concerned by the lack of achievement as highlighted by the number of turnaround projects that had been delayed or were not on track.  He wanted to know the reasons for the failure to meet the targets that had been set.  He asked what the point was of signing a shareholder compact for the financial year 2011/12 as the year ended in one month’s time.  He noted that the MTT met on a monthly basis to consider the reports of the SABC.  He wanted to know what powers and authority the MTT had, to what extent the Task Team influenced the achievement of the SABC and how effective the Team was.

Ms F Muthambi (ANC) acknowledged the progress that had been made but was concerned over the number of targets that were partially achieved.  The development of a turnaround plan had taken a long time and she understood that an external consultant had been appointed to devise the plan at considerable cost.  She asked when the Board would approve the turnaround plan and when it would be presented to Parliament.  She expected a more detailed briefing by the SABC on the implementation of the turnaround plan during a separate meeting with the Committee.  She understood that the Minister had signed the Shareholder’s Compact and she wanted to know what cost-cutting measures were included.  She asked for an explanation of the terms of reference and responsibilities of the MTT.  She asked for more information on the external consultant that had been appointed to conduct a feasibility study for the proposed new 24 hour news channel, what the cost of the consultant was and when the study would be completed.  She wanted to know what progress had been made in implementing the key turnaround plans.  She asked what the reasons were for the delayed turnaround projects.  She asked what the reasons were for the failure to meet advertising and sponsorship revenue targets.  She asked what the risk was of advertisers influencing SABC editorial content.

Ms Muthambi said that the issues concerning the organisational structure and operating model were long outstanding.  She wanted to know when the new operating model and organisational structure would be approved by the Board.  She asked for clarity on the concerns over content spending and if the SABC was meeting the targets for local content.  The increase in license revenue was welcomed but an explanation was required of the escalation in programming costs despite cutting down expenditure on content acquisition.  She asked for comment from the National Treasury on the progress report.

Mr Vilakazi explained that the MTT was established in 2010 by the Ministers of Communication and Finance.  The officials serving on the Team were nominated by the Ministers concerned and the terms of reference were developed.  The outputs of the MTT included monthly meetings to review the SABC’s financial performance and the results of implementing the turnaround plan.  The MTT could only make recommendations to the two Ministers.  The Ministers would take up any issues with the SABC Board.  The SABC officials serving on the Task Team were expected to refer recommendations to the SABC for implementation.  The MTT was not concerned with the actual development of plans, which was the responsibility of the SABC Board and executive management.

Mr Nkopane Makatse, Director, National Treasury advised that at the time the SABC approached the National Treasury, an amount of R1.473 billion was required.  The Treasury had recommended to the Minister that the guarantee for the full amount was provided.  Only R1 billion was however made available, with the understanding that a guarantee for the balance of R473 million would be available if certain milestones were reached by the SABC.  The SABC had subsequently advised that the additional guarantee was not required.  The Nedbank loan was granted for a period of 5 years.  The loan agreement stipulated that only the interest portion would be payable during the first two years and that the capital amount plus interest would be repaid during the third and subsequent years.  During the 2010/11 financial year, the SABC made a capital repayment of R110 million, in addition to the interest obligation.

Ms Morutoa asked for further clarity on the additional guarantee for R473 million.  She asked for further details of the role of the MTT in ensuring that targets were met and that cost-cutting measures were implemented.

Ms Killian asked that the oversight role of the SABC Board was clarified, how the turnaround strategy was managed and what the relationship was between the Board and the MTT.

Mr Lerato Nage, Acting CFO, SABC explained that an amount of R6 million in interest charges was saved by the early capital repayment of R110 million during 2010/11.  Loan repayments totalling R55 million were made during the 2011/12 fiscal year.  In March 2012, the SABC would be restructuring its balance sheet with the purpose of refocusing its debt liability.  A net loss of R92 million for 2011/12 was projected in December 2011.  The projected loss in January 2012 was R10 million.  At the time the guarantee was applied for, the SABC found itself in a dire financial position.  Subsequently, financial management had improved and in April 2011, the Corporation advised that the additional guarantee for R473 million would not be required as the necessary funds would be generated from operations.  Currently, the SABC had a cash reserve of R1.02 billion but needed to ensure that adequate provision was made for working capital.  The implementation of the turnaround plans had resulted in the collection of R140 million in overdue debtor accounts and credit notes totalling R40 million were resolved.

Dr Ben Ngubane, Chairperson of the SABC Board advised that the Board had held numerous special meetings in addition to the regular Board meetings.  The Board had been forced to become involved in operational matters as a result of the vacant executive management positions.  The appointment of a CEO and CFO allowed the Board to receive regular management reports.  The current Board was appointed in January 2010 and had inherited a “sinking ship”.  Members of the Board were dedicated and committed and a great deal of effort had been made.  The finalisation of the Shareholder’s Compact was delayed because amendments needed to be made.  A corporate plan was in place and the Board worked closely with the shareholder.

Dr Ngubane said that it was prudent to repay the bank loan in stages and to ensure that the cash in the bank was available to fund operations and development programmes.  A local content acquisition plan was in place but the SABC had been locked into historical agreements that forced it to purchase certain American programmes.  The soap operas screened by the SABC were popular with viewers and continued to attract advertisers.  The Board was committed to reduce the number of employees.  However, certain license provisions concerning universal access and language representation imposed by the Independent Communications Authority of South Africa (ICASA) required the appointment of more staff.  The ICASA rules on the broadcasting of sport of national interest had forced the SABC to remove scheduled programmes in favour of screening the matches.  As a result, the SABC had to issue credit notes for millions of Rand to advertisers.  The screening of the CAFF games had cost the SABC approximately R90 million in lost revenue.

Dr Ngubane assured the Committee that tangible progress was being made.  The SABC was in a strong financial position and the additional guarantee of R473 million was not required.  The Board had received a progress report on the implementation of the recommendations of the Auditor-General.  67% of the recommendations had been implemented.  Fraudulent activities were being investigated by the Special Investigations Unit (SIU).  Certain cases were sub judice and a more detailed briefing would be given to the Committee in March 2012.

Mr Desmond Golding, Member of the SABC Board added that the implementation of the turnaround plan and the Auditor-General’s recommendations was managed by a turnaround committee and an audit committee.  There was solid Board oversight over these matters.

Advocate Cawe Mahlati, Member of the SABC Board and Chairperson of the Audit and Risk Committee said that the Board should conduct oversight over the activities of the MTT and should approve the documents produced by the Task Team.

Ms Lulama Mokhobo, Group CEO, SABC said that the report submitted by the MTT was retrospective and did not provide insight into the progress that had been made.  She paid tribute to the Board for ensuring that the organisation continued to function despite a serious lack of executive management skills.  Senior positions were filled by persons in an acting capacity that did not have the necessary qualifications.  With the assistance of the new CFO, she would be addressing the issues that had been raised and would be reviewing the turnaround plan, Shareholder’s Compact and corporate plan as a matter of urgency.  The corporate plan included the guarantee conditions, the turnaround plan and the recommendations of the Auditor-General.  The strategy concerning the SABC 3 television channel was a high priority.  The major issues that had to be addressed were the quality of content, increasing audiences and marketing the channel.  She was aware that the reputation of the SABC had been eroded and that viewers were casting aspersions on a lot of the content.  She disagreed that most of the content was repeat screenings of programmes as there was much new content on offer.  It was necessary to amortise the expenditure on content but a strategy for repeat screenings had to be in place.  The SABC had invited local content submissions and the commissioning editors were currently reviewing the material that had been received.  She was confident that the quality of the content would be improved in the near future. 

Ms Mokhobo said that the matter of employee numbers was a thorny issue and the subject of an intense strategy session to be held in the near future.  A skills audit and a review of the required skills were important.  A detailed strategy had to be in place before the organisational structure was reviewed.  The revised structure and business strategy would be presented to the Board on 28 March 2012.  Once approved by the Board, the new structure would be implemented as soon as possible.  Specific targets had been set to position the SABC as a commercial channel and to allow it to compete effectively with other commercial television channels.  There were two reasons for the decline in sponsorship revenue.  There had been a dramatic change in how media houses planned to spend money.  Money spent on productions had been reduced but there had been an increase in spending on classical advertising.  She had discussions with the Chief operations Officer on how the SABC could meet its obligations and increase revenue.  The screening of sport events had to be planned in advance.  Advertisers had to be convinced to make optimum use of advertising time and the financial losses incurred when programmes were withdrawn had to be minimised.  Service level agreements had to be in place.  Parliament would be informed of major up-coming sporting events that would be screened by the SABC.

Ms Mokhobo said that the strategy for reducing employee costs had to take into account the staffing requirement of new initiatives, such as the 24 hour news channel and the DTT project.  More time was needed to review the manpower requirement of these two projects.  The SABC needed to retain highly skilled resources.  Any changes to the staffing strategy had to be negotiated with the labour unions.  Organised labour would be involved in the implementation of the turnaround strategy to ensure buy-in, support and assistance with training.

Ms Morutoa said that the Committee represented the public and had to address the concerns of the public.  She was unsure if the Members of the Committee were satisfied with the response of Dr Ngubane.

Dr Patricia Makhesha, Member of the SABC Board explained that there were four key elements to the turnaround strategy: staffing, internal business processes, the stakeholder perspective and regulatory environment and financial and corporate governance.  During November 2011, members of the Board had visited the SABC offices in all the provinces.  During the visits, employees were consulted and their concerns were noted.  32 issues had been raised, which were being addressed by the Board.  The reason for the delay in the turnaround projects was that the necessary framework for the delegation of authority was not in place.  A number of internal committees had been established to implement the turnaround plan.  As a state-owned entity, the SABC had to comply with the national transformation objectives.  The impact of transformation requirements on the turnaround strategy had to be taken into account.  The enterprise development criteria encouraged employees to develop their own enterprises.  The Board provided the leadership that would ensure that employees were committed to the corporate strategy.

Mr Lumko Mtimde, Member of the SABC Board said that the Board was committed to the turnaround strategy.  The report of the MTT showed that progress was being made.  The financial position of the SABC had improved.  Increased revenue was being generated, losses were reduced and additional loan guarantees were not required.  Stability at the executive management level had been achieved.  It was not desirable that the Board was involved in operational matters.  The briefing to the Committee on the 2011/12 annual report of the SABC would include more information on the progress that had been made.

Mr C Kekana (ANC) recalled that the SABC had performed exceptionally well during the 2010 FIFA World Cup.  He asked if the SABC had needed external assistance or if the necessary skills had been available in South Africa.  He said that the practice of ‘golden handshakes’ was generally used to rid an organisation of the old guard.  It was human nature to abuse power and resources.  The critical issue is whether structures were in place to curtail such abuse.  For this reason, the new organisational structure would be of interest to the Committee.  He was not entirely satisfied with the response concerning the historical content acquisition agreements.  In certain cases, television programmes promoted the wrong values.  The programmes being screened had to add value to society and he wanted to see that the content offered by the SABC addressed the national objectives.

Mr Steyn said that it was necessary for action to be taken if the MTT found during its monthly review of reports that targets were not being met.  The government guarantee was given twenty months ago but the progress report indicated that the conditions were not being met.  He asked if the purpose of the request to review the conditions was to adapt the conditions to the actual performance.  The good work done by the Board was acknowledged but he had reservations over the commitment to meet the conditions.  A deficit of R92 million was projected for the 2011/12 financial year yet the SABC had cash reserves of R1 billion.  He understood the need for prudent financial management but was not sure if the interest earned on the cash in the bank exceeded the interest charged on the loan.  The term of the bank loan was for five years but the term of the guarantee was for four years.

Mr Schneemann asked for clarity on the statement that the progress report did not include up-to-date information.  The Committee should not be given inaccurate, outdated information.

Mr Vilakazi explained that the Shareholder’s Compact had subsequently been signed and a responsible official for one of the turnaround projects had been appointed.  The information in the progress report was accurate.

Ms Shinn asked if the ICASA regulations and licence conditions were inhibiting.  Advertising revenue was lost and more staff was needed to satisfy the language criteria.  She wondered if ICASA should be more flexible and take into account that there was an additional financial cost attached to certain rules.

Ms Killian queried the projected loss of R92 million.  Earlier briefings to the Committee had indicated that the SABC would declare a profit.  She asked if the SABC had a business plan in place for DTT.  She asked what informed the cash flow projections and the estimated shortfall if DTT was invested in.  The Committee was responsible for conducting oversight over the SABC.  It was necessary to question the information provided but this did not mean that the Committee did not appreciate the time and effort invested by members of the SABC Board.  The Committee nominated Board members and expected the Board to respond to the problems faced by the public broadcaster.  The Committee was comforted by the response of the CEO and was pleased to note that professional management was in place.

Ms Muthambi asked when the Board would approve the turnaround strategy and the new organisational structure, which was the reason for the failure to meet certain guarantee commitments.

Ms Newhoudt-Druchen said that SABC personnel had complained about the deployment of staff from other provinces and the inadequacy of premises.  She was pleased to note that local content would be increased.  Documentary programmes were an essential source of information for persons with disabilities and she asked the SABC to ensure that programmes were accessible to the disabled community.  An example was the programme “Final Verdict”, which was not accessible to persons with hearing impairment.

Dr Makhesha said that the responsibilities of employees had to be clearly defined, a performance management system had to be put in place and non-performance had to be punished.

Ms Suzanne Vos, Member of the SABC Board said that Section 192 of the Constitution was clear on the issue of regulation.  The Board did not consider the regulations issued by ICASA as hindering.  Discussions had been held with ICASA on the funding model and on the various issues concerning broadcasts that were in the public interest.  The guarantee conditions were agreed to by the previous Board.  DTT was a critical national objective that would cost millions of Rand to implement.  The costs associated with the DTT programme were specifically excluded from the government guarantee.  The issue of the funding of the DTT programme needed a multi-faceted approach, which included ICASA and the National Treasury.

Mr Golding said that the decision to retain cash reserves was based on prudent financial management principles.  The SABC had repaid part of the loan ahead of schedule.  At the time, the SABC was desperate to obtain the government guarantee and had agreed to the conditions.  In view of the subsequent good financial performance, it was proposed that certain conditions were relaxed.

Mr Nage advised that revenue had increased year-on-year by 21% in 2009/10 and by 18.1% in 2010/11.  A financial strategy was developed to ensure the recovery of the SABC and to establish a financially stable organisation.  The guarantee conditions included specific projected losses but the improved financial performance allowed the Corporation to propose a relaxation of the original guarantee conditions.  The decline in sponsorship revenue was off-set by the increase in advertising revenue.  The issue of increasing staff costs was under discussion.  The staffing strategy needed to take into account the role of the SABC as the public broadcaster.  Projected staff costs had to be balanced against projected revenue.  Although a loss of R92 million was forecast for 2011/12 this was far less than the losses incurred in previous years.  Significant progress had been made in improving the financial management of the SABC.  Financial control mechanisms were in place and quarterly financial reports were produced.  The main goal was to reduce the debt.  Provision had been made to repay the Nedbank loan in full in accordance with the loan agreement.  The early repayment of R111 million in 2010/11 had resulted in a saving of R6 million in interest charges.  The SABC was being turned around and was currently in a sustainability phase.  Sufficient cash reserves were in place to meet commitments.  The increased cash reserves were generated from operations.  Internal financial management and controls had improved.  There was more control over debtor and creditor accounts.  The financial environment had changed significantly since the guarantee conditions were imposed and the original planning took place.

Mr Vilakazi confirmed that the period of the government guarantee covered the period of the loan from Nedbank.  Agreements were in place to cover the eventuality of early capital repayments.  He explained the processes followed by the National Treasury when dealing with applications for government guarantees and requests for a review of guarantee conditions.  The MTT was required to submit quarterly reports to the National Treasury on compliance to the guarantee conditions.  The SABC’s application to review the guarantee conditions would be considered by the Guarantee Certification Committee on 13 March 2012.  The financial performance of the SABC since 2009, its continued financial viability and its ability to meet its mandate would be taken into account.  The required budget process had to be followed.  Applications for additional funding for the DTT project would be considered and the DOC and SABC would be informed by the Treasury if the application was approved or not approved.

Ms Avril Halstead, Chief Director: Sector Oversight, National Treasury explained that the SABC guarantee was issued by the Minister of Communications, with the concurrence of the Minister of Finance.  The request to review the guarantee conditions had to be submitted to the Minister of Communications in the first instance.

Ms Morutoa said that the Committee was informed during an oversight visit to the SABC offices in KwaZulu Natal that an ex-employee had been appointed as a consultant.  The person concerned was certain Mr Sithole.  She asked for an explanation of the appointment of Mr Sithole.

Mr Hlaudi Motsoeneng, Chief Operations Officer, SABC replied that Mr Sithole was a consultant and was not employed by the SABC.

Ms Morutoa was not satisfied with the response to her question. She asked for confirmation that the SABC did not appoint employees to provide consulting services.  She wanted clarity on the strategy concerning the appointment of consultants versus full-time employees.

Mr Steyn asked if Mr Sithole was ever an employee of the SABC.  He asked what the impact on advertising revenue would be when the Minister of Health succeeded in banning alcohol advertising.

Ms Killian requested that the following briefing by the SABC included detailed feedback on the matters in the Auditor-General’s report.  She asked if information was available on employees that established businesses for the purpose of providing consulting services to the SABC.  The Committee required the assurance that the undesirable practice of appointing ex-employees as consultants when their employment contracts expired had been stopped.

Ms Newhoudt-Druchen asked if there were investigations into cases where SABC employees were also being paid for providing consulting services.

Mr Kekana said that the use of the services of freelancers was common international practice.  He was concerned that the emphasis on increasing advertising revenue would result in the SABC being dominated by commercial interests.  In Britain, the public broadcaster was 100% funded by public funds.  In South Africa, the percentage was 60%.  He queried the ability of the SABC to generate advertising revenue and to be commercially competitive without compromising its obligations as the public broadcaster.

Mr Nage explained the assumptions made for the cash flow forecast included in the briefing document.  He said that the proposed ban on alcohol advertising would result in a loss in advertising revenue.  The matter had been taken up with the Minister of Health by the Board.  The Minister had responded that in principle, he would prefer it if the same amount of money was given to the SABC to spread the anti-alcohol message instead.  The potential loss in advertising revenue had been taken into account for revenue forecasts.  The SABC had submitted applications for additional funding for the digital library, the 24 hour news channel and priority sport programmes.

Dr Ngubane explained that the Acting Group CEO had approached the Board in 2011 to request additional resources to assist with the implementation of the turnaround strategy, particularly in the alignment of channels and programming content.  Previously all content was purchased by a central content hub.  However, the arrangement had resulted in the purchase of large amounts of content at considerable expense and a new system was introduced.  The Board agreed to the request of the Acting Group CEO and requested the curriculum vitae of the candidates for the position.  The CV’s were not received.  Mr Sithole was appointed by the office of the Acting CEO on a temporary basis to assist the Acting Group CEO.  His contract expired in March 2012.  He was not aware that Mr Sithole was a consultant and had no knowledge of any dealings with a business owned by him.  The appointment of Mr Sithole did not follow the proper procedure.

Ms Killian said that the matter illustrated the reason why the Committee was concerned over activities that did not follow procedure.  She pointed out that all members of the SABC Board were held accountable in terms of the Public Finance Management Act (PFMA).  Board members were required to act on information involving irregular activities.  There should be consequences for the person responsible for the failure to adhere to procedure.  It was essential that the Board was seen to lead the way if it wanted all employees to follow the rules.  She asked the Board for a commitment that adherence to procedures would be given high priority.

Ms Muthambi suggested that the issues concerning the operations of the SABC were deferred to the Committee meeting scheduled for the following week.

Adv Mahlati said that the SABC carried a heavy regulatory load.  The Minister of Communications had announced a review of the regulatory environment.  Content could also be provided by the internet and smart phones, which was not subjected to the same regulatory requirements as the public broadcaster.  A more level playing field was necessary and more frequency spectrum had become available.  The nature and essence of a public broadcaster and the competition from other platforms were currently being discussed internationally.  Broadcasters could no longer dictate to consumers what content should be watched as technological advancements allowed viewers to schedule their own content.

Ms Morutoa thanked the MTT and the SABC Board for clarifying the issues.  The Committee was aware that more time was needed to implement the turnaround plan.  The Committee would continue to track the progress that was made.  The issues raised by Members during the proceedings would be deferred to the meeting with the SABC scheduled for the following week.

The meeting was adjourned.